Inflation update, real experiences from a small chemical manufacturer:
I wrote a post on inflation ( in which I talked about the real price increases being experienced by a small chemical manufacturer (25 employees) based in the SouthEast US. Everyone sees the headline figures, but I thought it would be interesting to share with folks specific increases from a real small business. I'm updating some of those figures now below.

By far, the biggest increase to prices came from silicones. China is the largest individual producer of silicones, which is probably the reason why they've been hit the hardest. The two primary silicones the business uses (we'll call them #1 and #2) started 2021 at:
  1. $1.16 / lb
  2. $1.24 / lb
The highest price they reached was in the first quarter this year:
  1. $9.98 / lb
  2. $3.12 / lb
Their current prices are:
  1. $4.4 / lb
  2. $2.25 / lb

Silicone #1 continues to fall in price, and it's another 10% cheaper for delivery end of July/early August.

Glycol-Ether is a very common raw material and started 2021 at $0.72/lb. It had increased to $1.92/lb by the first quarter of 2022 and is now at $2.19 - but it has stayed at this price for the past couple of months.

The various raw materials involved in producing 1 pound of a concentrate used to make soaps cost $1.30 in the beginning of 2021. The cost rose to $1.79 in February of 22, and has risen steadily ever since, currently it's at $1.94.

Mineral Oil went from $7.15 per gallon at the beginning of 2020 to $10.90 per gallon by February of 2022, and prices have kept on increasing. It now costs: $13.35

Generally speaking, price increases on chemicals have slowed down, and while it used to be that most chemicals were increasing 5-10% per month the increases are now down to 2-5% per month on about half of the chemicals purchased, and the other half have stopped increasing.

Plastic bottles and caps are up between 20 and 30% since the beginning of 2021. These increases would likely be even higher except the business has been buying in larger quantities to keep the increases lower. As of February the range of increases was between 5 and 20% - so the rate of increase has certainly slowed.

Sponges and towels were up around 7.5% as of February from the beginning of 2021. They have since gone up another 5%, and are expected to increase another 5% in the third quarter.

For over a year this chemical manufacturer and their customers avoided passing cost increases through to their end customers. The large companies in the space had not increased their prices at all, and while the big guys produce inferior products from a quality standpoint everyone was worried that customers would still switch to the worse products to save money. Then, starting around the first quarter 2022 the big boys started to increase prices aggressively. My guess is what had happened is the big companies had long-standing purchase agreements for raw materials, and they didn't get hit with the price increases as fast the smaller companies that purchase chemicals through distributors. Once the big guys increased prices though smaller companies had less fear around doing it themselves. Now the smaller companies are beginning to pass through cost increases, though still not on a $/$ basis - so margins are still shrinking. So, even though there was enormous inflationary pressure in 2021 the price increases didn't start reverberating through the market until the beginning of this year from the perspective of consumers.

So far, the vast majority of customers are hitting record sales volumes, and there isn't any sign yet that the higher costs which are now being passed through are impacting sales. Funny enough, we've heard many anecdotes at this point where customers sent thank you notes after receiving price increases, undoubtedly because they were being hit with larger price increases everywhere else and were appreciative that these increases were smaller than they expected. This is interesting because it speaks to how widespread inflation has been for producers and how folks are still expecting things to get worse, so even bad news is good news.

Supply chain wonkiness is far better than it has been in over a year. Out of the 30 primary chemicals that this business orders, only a few of them are still unreliable in terms of lead times. Plastic Bottle lead times are down to 4-6 weeks from 3-4 months. Most chemicals are now reliably held in stock.

There are still exceptions. Trichloroethylene for example has tripled in price since the end of last year and supply remains unreliable, with distributors unable to even commit to a lead time - but these are becoming ever rarer exceptions.

It will be interesting to see how Q3 goes, as Q2 was the biggest quarter thus far of price increases - so we haven't really had a chance to see the impact on demand. I'll keep everyone posted.
Scoreboard Investor's avatar
This is the content I’m here for. Thanks for the deep dive into chemicals and manufacturing. This is an easily overlooked area, but is essential to our daily lives
Benjamin Buchanan's avatar
@scorebdinvestor Appreciate that!